Google Inc’s (GOOG) acquisition of ITA Software — which has been pending for many months — was finally cleared by the Department of Justice on April 8, 2011.
The acquisition received strong opposition from travel companies, such as Expedia Inc. (EXPE), competitors such as Microsoft Corp (MSFT) and airline ticket providers, such as Kayak. In fact, Expedia-owned TripAdvisor and Hotwire joined with the above parties among others to form what they called the FairSearch coalition in an effort to thwart Google’s efforts in the online travel market.
However, Orbitz Worldwide (OWW) another online travel company that uses QPX has made it a point to stay away from the coalition and has already extended its licensing agreement up to 2015.
For companies like Microsoft and Kayak, the chief concern has been ITA Software’s QPX technology that is currently used by them to generate relevant searches for air travel fares, schedules and availability. Their argument is that Google’s acquisition of ITA would enable it to sever ties with them, or control what they can do with search by not licensing out further development of the technology, or making the software so expensive that they would prefer not to use it.
News reports indicate that the two may combine to use separate technology developed internally by Kayak. Additionally, the Justice Department’s ruling requires Google to allow licensing at a reasonable rate as a pre-condition to the acquisition. Google is also required to continue to develop and then offer ITA’s InstaSearch technology (an enhancement to QPX) that is not yet commercially available.
The department has also made it mandatory for Google to take necessary precautions to prevent unauthorized access and use of commercially sensitive information that could affect competition between parties. It is also forbidden to enter into agreements with airline companies that have the effect of restricting their offer of information regarding seats or reservations to Google competitors.
So it seems that all the concerns of these parties have been addressed.
For Expedia, the deal is not favorable. Expedia’s concern was not related to QPX, since the company uses its proprietary technology. Instead, for Expedia it is more a question of economics. Expedia’s relationship with Google has been long and fruitful for both paries, with Expedia generating a lot of revenue for Google over the past few years.
Expedia’s fear is that with Google entering the travel market directly, it’s own sites would feature higher up on search listings and competing sites, such as Expedia would need to lay out more cash to ensure that this did not happen. This issue is hard to take care of (although the Justice Department has its eyes on it); consequently, we expect Expedia’s fears to be realized over a period of time, notwithstanding the fact that Google makes good money from the relationship.
There is another group affected by the transaction. They are the global distribution systems (GDSs) Amadeus, Galileo, Sabre and Worldspan. A GDS is a worldwide computerized reservation system providing information on airline seats, hotel rooms, rental cars and other travel products that can be used by travel agents, online reservation sites and big companies.
GDSs are bound by various regulations and they would like Google, which is developing into a GDS for all practical purposes to be bound similarly. The argument in Google’s favor is that it does not sell any of these goods, but advertisements that are generated on the pages the information is provided.
Google, Expedia and Microsoft shares carry a Zacks #3 Rank, which translates to a short-term Hold rating.
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